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Working on the Front Lines of Investor Protection – Barring Bad Actors from the Industry

FINRA

Within FINRA, we view ourselves as working on the “front lines” of investor protection. 

What does that mean? 

It means that we act quickly to identify misconduct, stop fraud and prevent losses, obtain restitution for harmed investors, and remove bad actors from the brokerage industry. Here, we are focusing on that last piece—barring bad actors from the industry.

Let us start with the obvious—there are over 600,000 registered brokers, and the overwhelming majority conduct themselves with the highest ethical standards and are a trusted source of valuable investment advice for their clients. Unfortunately, however, a small minority of brokers engage in purposeful misconduct. And because of their positions within the brokerage industry, these few “bad apples” are capable of causing outsized harm to investors—and the markets—and casting a shadow over the rest of the industry.

Our job, therefore, is to remain vigilant. To be alert to “red flags” of broker misconduct, and, where we identify such misconduct, to move as fast as possible to stop ongoing harm and remove the bad actors from the industry. 

In the last two years alone, FINRA barred more than 730 brokers from the brokerage industry—an average of one per day—for a vast range of misconduct, including:

  • a broker who withdrew over $130,000 from his mother’s account, without his mother’s knowledge or consent, and used those funds to pay his personal expenses;
  • a broker who accepted blank checks from his 87-year-old customer purportedly so that he could pay the customer’s caregivers if the customer became unable to do so, but instead used the checks to fund personal expenditures, including the purchase of a 1976 Corvette; and
  • a broker who churned the account of his customer, a 93-year-old retired clothing salesman who was experiencing a decline in mental health, by effecting more than 3,500 transactions in the customer’s accounts, generating approximately $735,000 in commissions.

One more thing about working on the front lines of investor protection: it is critical that FINRA staff be nimble, i.e., ready to respond quickly and aggressively to stop ongoing misconduct. Thus, we are particularly proud that, in numerous instances, FINRA staff were able to bar a bad actor from the industry within just a few weeks of the discovery of the underlying misconduct, saving investors and the markets from further harm.